US
USD is down across the board, global equity markets are up, and bond markets are steady. Yesterday, President Donald Trump confirmed he has reduced the shortlist for Fed chair to one candidate and plans to nominate his choice in “early” 2026 while referring to White House National Economic Council Director Kevin Hassett as “potential” Fed chair. Hasset has consistently pushed for a more aggressive pace of Fed rate cuts, recently stating that he shares President Trump’s view that rates can be “a lot lower.”
Importantly, the Fed chair is not an autocrat. Monetary policy is set by the FOMC (7 governors and 5 Reserve Bank presidents) which constrains the power of any one individual in setting policy. Each member has one vote, and all decisions are made by majority vote.
That means US economic data will matter more for Fed rate expectations than the FOMC line-up. Right now, the data argues for additional Fed funds rate cuts. US labor demand is weak, consumer spending is showing early signs of cracking, and upside risks to inflation are fading. Bottom line: narrowing rate differentials between the US and major economies suggests the path of least resistance for USD is down.
ADP November employment is up next (1:15pm London, 8:15am New York). ADP payrolls are expected at 10k vs. 42k in October. For reference, the ADP weekly employment preliminary estimate showed private employers shed an average of -13,500 jobs a week for the four weeks ending November 8.
ISM November services index is runner up (3:00pm London, 10:00am New York). The headline index is projected at 52.0 vs. 52.4 in October, indicative of resilient services activity. Watch the Prices Paid and Employment sub-indexes. In October, Prices Paid increased to a three-year high at 70.0 and the Employment gauge improved to a five-month high at 48.2, hinting at quickening inflation and moderating job losses.
US liquidity conditions are seizing up again. The spread between the tri-party general collateral rate (TGCR) and interest rate on reserve balances (IORB) has widened to 17bps, just shy of its October 31 high of 25bps. In normal conditions, TGCR should be close to or slightly below IORB on average over time.
Upward pressure on funding rates while liquidity is no longer being drained (Fed ended the reduction of its aggregate securities holdings on December 1) is a red flag. It could be a sign of stress inside the money market plumbing which means liquidity is becoming scarce for structural or risk-related reasons rather than policy. If the recent rise in repo rates is sustained, the Fed will have to begin buying assets again, further weighing on USD.
SWITZERLAND
USD/CHF dipped back to the middle of its multi-month 0.7900-0.8100 range. Swiss inflation unexpectedly cools in November. Headline CPI printed at 0.0% y/y (consensus: 0.1%) vs. 0.1% in October, tracking well below the SNB’s Q4 projection of 0.4%. Core CPI dipped to 0.4% y/y (consensus: 0.5%) vs. 0.5% in October.
Still, last month’s US-Swiss trade deal boosts Switzerland’s growth prospects and suggests the bar is high for rate cuts below the current level of 0.00%. The swaps market continues to imply roughly 50% odds of a 25bps rate cut to -0.25% in the next twelve months.
AUSTRALIA
AUD/USD rallied to a multi-week high near 0.6600. Australia Q3 real GDP growth underwhelmed but details are more reassuring and back the RBA’s on hold bias. Real GDP rose 0.4% q/q vs. 0.7% in Q2. This was weaker than the consensus (0.7%) and the RBA’s projection (0.5%). On a year-over-year basis, real GDP was 2.1% vs. 2.0% in Q2. That is largely in line with the RBA’s Q4 projection of 2% and signals firmer underlying capacity pressures.
Over Q3, inventories destocking was the biggest drag to growth (-0.5pts) and masks healthier private domestic demand underneath. Private investment contributed 0.5pts to GDP growth reflecting the ongoing expansions of data centers, while household expenditure added 0.3pts to GDP growth driven by essential spending.
The swaps curve is betting on RBA rate hikes over the next year, in sharp contrast to the 100bps of easing priced for the Fed. As such, AUD/USD has scope to converge with one-year implied policy rate differentials and trade closer to 0.6700.
POLAND
National Bank of Poland (NBP) is expected to deliver a fifth consecutive 25bps policy rate cut to 4.00% today. Poland headline and core CPI inflation are undershooting the NBP’s 2025 forecast of 3.7% and 3.3%, leaving room for additional easing.
In the next two years, the swaps curve more than fully price in NBP to slash rates by 50bps to 3.75%. In contrast, the one-year swaps curve price-in the Czech National Bank (CNB) to raise rates 50bps to 4.00%. Bottom line: monetary policy divergence points to a lower PLN/CZK.
